Navy Shipbuilding:

Allegations of Mischarging at Bath Iron Works

NSIAD-91-85: Published: Jul 5, 1991. Publicly Released: Jul 8, 1991.

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Pursuant to a congressional request, GAO reviewed the Navy's efforts to address an anonymous source's allegations of improper charges and other contractual issues at the Bath Iron Works Corporation (BIW), a Navy shipbuilding contractor.

GAO found that: (1) the Navy's oversight of BIW contracts was ineffective and contributed directly to the improper charges and problems found; (2) the Navy inadequately reviewed allegations regarding cruiser program mischarges, charges for ripout and rework on cruisers that did not occur, and questionable pricing and negotiation of destroyer contract modifications; (3) the Navy did not resolve contractual disputes for over 2 years and maintained no data on ripout and rework BIW actually performed in the construction of cruisers; (4) BIW improperly charged some costs to a cost-reimbursable contract rather than a fixed-price contract; (5) BIW incorrectly charged engineering labor hours to the destroyer-service instead of the destroyer-construction contract, costing the Navy about $2.5 million; (6) Navy investigations reported that improper charges were due to mistaken interpretations of contract requirements; (7) BIW records lacked sufficient detail to accurately audit whether labor charges were proper; (8) the Navy had difficultly quantifying the adjustment due BIW, as BIW presented no evidence of its attempt to quantify the adjustment to which it believed it was entitled; (9) the Navy was responsible for ensuring that the ultimate impact of the restructuring was fair and reasonable, but there is no documentation to illustrate how the Navy decided to increase payments by about $37 million; and (10) the Naval Inspector General's investigative reports had significant factual errors and misleading statements and no supporting working papers.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The agency and contractor have taken some actions in response to the two recommendations in the report. The contractor had begun to implement more oversight procedures. However, during work on a recent unrelated review at Bath Iron Works, it was noted that some oversight activities were no longer practiced. Only the use of the new automated time-and-attendance system was evident. Before work to test and verify this issue could be started, however, the review at Bath was terminated. Also the recent sale of Bath to General Dynamics will likely result in its changing its financial and accounting system to bring them in line with procedures used at Electric Boat.

    Recommendation: The Secretary of the Navy should, in conjunction with the Defense Contract Audit Agency and BIW, provide improved controls over the BIW charging system. This would include a combination of better data on contract charges as well as extensive monitoring of contract charges through employee floor checks.

    Agency Affected: Department of Defense: Department of the Navy

  2. Status: Closed - Implemented

    Comments: The agency and contractor have taken some actions in response to the two recommendations in the report. The contractor had begun to implement more oversight procedures. However, during work on a recent unrelated review at Bath Iron Works, it was noted that some oversight activities were no longer practiced. Only the use of the new automated time-and-attendance system was evident. Before work to test and verify this issue could be started, however, the review at Bath was terminated. Also the recent sale of Bath to General Dynamics will likely result in its changing its financial and accounting system to bring them in line with procedures used at Electric Boat.

    Recommendation: The Secretary of the Navy should review and strengthen oversight activities at BIW through measures such as increased monitoring activities, prompt attention to contract management issues, and improvements in internal controls.

    Agency Affected: Department of Defense: Department of the Navy

 

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